Sierra Furniture is an elite desk manufacturer. It manufactures two products:
◆ Executive desks: 0.91 m × 1.5 m oak desks = 1.365 m2
◆ Chairperson desks: 1.8 m × 1.2 m red oak desks = 2.16 m2
The budgeted direct cost inputs for each product in 2013 are as follows:
Unit data pertaining to the direct materials for March 2013 are as follows:
Unit cost data for direct cost inputs pertaining to February 2013 and March 2013 are:
Manufacturing overhead (both variable and fixed) is allocated to each desk based on budgeted direct manufacturing labour-hours per desk. The budgeted variable manufacturing overhead rate for March 2013 is $42 per direct manufacturing labour-hour. The budgeted fixed manufacturing overhead for March 2013 is $51,000. Both variable and fixed manufacturing overhead costs are allocated to each unit of finished goods. Data relating to finished goods inventory for March 2013 are:
Budgeted sales for March 2013 are 740 units of the Executive Line and 390 units of the Chairperson Line. The budgeted selling prices per unit in March 2013 are $1,224 for an Executive Line desk and $1,920 for a Chairperson Line desk.
Assume the following in your answer:
a. Work-in-process inventories are negligible and ignored.
b. Direct materials inventory and finished goods inventory are costed using the FIFO method.
c. Unit costs of direct materials purchased and finished goods are constant in March 2013.
REQUIRED
Prepare the following budgets for March 2013:
1. Revenue budget.
2. Production budget in units.
3. Direct materials usage budget and direct materials purchases budget.
4. Direct manufacturing labour budget.
5. Manufacturing overhead budget.
6. Ending inventory budget.
7. Cost of goods sold budget and gross margin calculation.
SOLUTION
1. Revenue Budget
Executive Line Chairperson Line Total
Units sold 740 390
Unit selling price $1,224 $1,920
Budgeted revenue $905,760 $748,800 $1,654,560
2. Production Budget in Units
Executive Line Chairperson Line
Budgeted sales 740 390
Add budgeted ending f.g. inventory 30 15
Total requirements 770 405
Deduct beginning f.g. inventory 20 5
Budgeted production 750 400
3. Direct Materials Usage Budget (units):
Oak Red Oak Oak Red Oak
Top Top Legs Legs Total
Executive Line:
1. Budgeted input per f.g. unit 1.5 m2 — 4 —
2. Budgeted production 750 — 750 —
3. Budgeted usage 1,125 — 3,000 —
Chairperson Line:
4. Budgeted input per f.g. unit — 2.3 m2 — 4
5. Budgeted production — 400 — 400
6. Budgeted usage — 920 — 1,600
Total direct materials usage (3+6) 1,125 920 3,000 1,600
1. Beginning inventory 29.8 13.9 100 40
2. Unit price (FIFO) $21.60 $27.60 $13.20 $20.40
3. Cost of DM used from
beginning inventory $643.68 $383.64 $1,320 $816 $3,163
4. Materials to be used from
purchases 1,095.20a 906.10b 2,900c 1,560d
5. Cost of DM in March $24 $30 $14.40 $21.60
6. Cost of DM purchased and
used in March $26,285 $27,183 $41,760 $33,696 $128,924
Direct materials used (3+6) $26,928 $27,567 $43,080 $34,512 $132,087
a 1125 m2 – 29.8 = 1,095.2 m2 c 3,000 legs – 100 = 2,900 legs
b 920 m2 – 13.9 = 906.1 m2 d 1,600 legs – 40 = 1,560 legs
Direct Materials Purchases Budget:
Oak Red Oak Oak Red Oak
Top Top Legs Legs Total
Budgeted usage 1,125 920 3,000 1,600
Add ending inventory 17.9 18.6 80 44
Total requirements 1,142.90 938.60 3,080 1,644
Deduct beginning inventory 29.8 13.9 100 40
Total DM purchases 1,113.10 924.70 2,980 1,604
Purchase price (March) $ 24.00 $ 30.00 $ 14.40 $ 21.60
Total purchases $26,714.40 $27,741.00 $42,912.00 $34,646.40 $132,013.80
4. Direct Manufacturing Labour Budget
Direct
Manu.
Output Labour-
Units Hours per Total Hourly
Produced Output Unit Hours Rate Total
Executive Line 750 3 2,250 $36 $ 81,000
Chairperson Line 400 5 2,000 $36 72,000
4,250 $153,000
5. Manufacturing Overhead Budget
Variable manufacturing overhead costs
(4,250 × $42) $178,500
Fixed manufacturing overhead costs 51,000
Total manufacturing overhead costs $229,500
Total manufacturing overhead cost per hour
| = | $229,500 4,250 | = $54 per direct manufacturing labour-hour |
Fixed manufacturing overhead cost per hour
| = | $51,000 4,250 | = $12 per direct manufacturing labour-hour |
| 6. | Computation of unit costs of finished goods: | |
| Direct materials | |
| Executive Line | Chairperson Line |
| Direct materials | |
| Oak top ($24 × 1.5; 0) | $ 36.00 |
| Red oak top ($30 × 0; 2.3) | | $ 69.00 |
| Oak legs ($14.40 × 4) | 57.60 |
| Red oak legs ($21.60 × 4) | | 86.40 |
| Direct manufacturing labour ($36 × 3; 5) | 108.00 | 180.00 |
| Manufacturing overhead | |
| Variable ($42 × 3; 5) | 126.00 | 210.00 |
| Fixed ($12 × 3; 5) | 36.00 | 60.00 |
| Total manufacturing cost per unit | $363.60 | $605.40 |
| Ending Inventory Budget | |
| Cost per Unit | Units | Total |
| Direct Materials | |
| Oak top $ 24 | 17.9 | $ 429.60 |
| Red oak top 30 | 18.6 | 558.00 |
| Oak legs 14.40 | 80 | 1,152.00 |
| Red oak legs 21.60 | 44 | 950.40 |
| | $3,090.00 |
| Finished Goods | |
| Executive 363.60 | 30 | 10,908.00 |
| Chairperson 605.40 | 15 | 9,081.00 |
| | 19,989.00 |
| Total | | $23,079.00 |
| 7. | Cost of Goods Sold Budget | |
| Actual finished goods inventory, | |
| | March 1, 2013 |
| ($12,576 + $5,820)a | | $18,396a |
| Direct materials used | $132,087 |
| Direct manufacturing labour | 153,000 |
| Manufacturing overhead | 229,500 |
| Cost of goods manufactured | | 514,587 |
| Cost of goods available for sale | | 532,983 |
| Deduct ending finished goods inventory, | |
| March 31, 2008 | | 19,989 |
| Cost of goods sold | | $512,994 |
| a given | |
| Therefore, from #1) Budgeted Revenue | = | $1,654,560 |
| Less, from #7) Costs of Goods Sold | = | 512,994 |
| Gross Margin | = | $1,141,566 |